Pushing aside new scientific studies of possible health risks, the Environmental Protection Agency approved an air pollution regulation this year that could save the wood products industry hundreds of millions of dollars.

In doing so, the agency relied on a risk assessment generated by a chemical industry-funded think tank, and a novel legal approach recommended by a timber industry lawyer. The regulation was ushered through the agency by senior officials with previous ties to the timber and chemical industries.

The officials say they advocate a balanced approach to environmental regulation that weighs costs as well as benefits. Their critics say science and public health are losing out.

"This rulemaking veers radically from standard scientific and regulatory practices," said David Michaels, an epidemiologist who was assistant Energy secretary for environment, safety and health in the Clinton administration. Others say it may violate the Clean Air Act.

The regulation addresses emissions of formaldehyde, a chemical used by plywood manufacturers and other industries. Exposure to formaldehyde may cause cancer and lead to nausea and eye, throat and skin irritation. At the time the regulation was being drafted, the National Cancer Institute and the National Institute of Occupational Safety and Health disclosed new studies showing that exposure to formaldehyde might also cause leukemia in humans.

The EPA rule, signed in February, did not mention the possible link to leukemia. Instead, it adopted a standard for exposure based on a cancer risk model developed by the Chemical Industry Institute of Toxicology. That assessment is about 10,000 times less stringent than the level previously used by the EPA in setting general standards for formaldehyde exposure.

Many scientists considered the earlier EPA risk level to be outdated; Canada, for example, used the chemical institute model to help set its formaldehyde standard in 2000. But the accuracy of that model in predicting human risk was a source of debate even before the new leukemia studies.

Citing such concerns, a California scientific advisory panel voted unanimously this week to reject a formaldehyde industry request to reconsider the state's risk assessment of the toxic gas. Panel members said the chemical institute's model needed further development and validation.

The new EPA rule also breaks legal ground in the application of the 1990 Clean Air Act amendments.

At that time, Congress required industry to reduce emissions of toxic pollutants to levels that could be achieved by the best available technology. But it permitted the EPA to spare entire categories of pollution sources from tough controls if all posed less than a one-in-a-million cancer risk. As the wood products regulation was being considered, it was clear the industry could not meet that test. Instead, the EPA created a new category of "low-risk" plants, putting the agency in the role of overseeing, plant by plant, which facilities endangered the public.

The rule initially exempts eight wood products plants from controls on formaldehyde and other emissions. Ultimately, 147 or more of the 223 facilities nationwide could avoid the pollution-control requirements. The exemptions will save the industry as much as $66 million annually for about 10 years in potential emission control costs.

The idea of identifying low-risk plants was suggested to the EPA by a lawyer at the firm of Latham & Watkins, which represents timber interests.

The EPA's top air pollution regulator, Jeffrey R. Holmstead, embraced the concept. He was already familiar with it. A former lawyer at Latham & Watkins himself, he had represented one of the nation's largest plywood producers and other companies seeking to limit pollution regulation.

"The basic approach was something that I had been thinking about for a number of years," said Holmstead, assistant EPA administrator for air and radiation. He also backed the EPA's use of the scientific data from the institute funded by the American chemical industry, another former client.

At the White House, Holmstead found an ally in John D. Graham, regulatory chief of the Office of Management and Budget. He had established the respected Harvard Center for Risk Analysis, which received funding from some of the companies that pushed the new EPA regulation. Graham came to OMB vowing to set new standards for cost-benefit analysis, transparency and reliance on sound science in regulatory decisions.

"Public health should be the regulator's first priority," Graham said in a written response to questions. "However, when the health risks are speculative, it is OMB's job to ask whether the regulation will be good for consumers, workers and businesses. Consumers pay for burdensome regulations in the form of higher prices for homes and products while American jobs are placed at risk."

Some agency veterans say the EPA's approach departs from past practices under both political parties.

"EPA decisions now have a consistent pattern: disregard for inconvenient facts, a tilt toward industry, and a penchant for secrecy," said Eric Schaeffer, a longtime EPA enforcement official who resigned in protest in 2002 and now heads the Environmental Integrity Project, a watchdog group.

The Proposal

In early 2002, the EPA was under court order to write regulations governing formaldehyde emissions at wood products facilities. The deadline was Feb. 27, 2004.

Formaldehyde is a naturally occurring chemical released when wood, tobacco and other organic substances burn. It is best known as the key ingredient in embalming fluid; its foul smell is familiar to anyone who dissected frogs in biology class. It is used most frequently as a binding agent in pressed-wood products, furniture, flooring and chemical and household manufacturing.

Although it is classified as a probable human carcinogen, the lack of crystal-clear links between exposure and increased cancer rates has long made regulation controversial.

On Jan. 14, 2002, EPA staffers joined Holmstead in his fifth-floor conference room to meet with a lobbyist for the American Forest & Paper Assn. and the group's Washington lawyer to discuss the upcoming rule-making. Such sessions are routine at the EPA, where regulators and industry experts exchange scientific data and legal theories.

But some staffers found this gathering remarkable.

The forest products lobbyist, Timothy Hunt, was an old acquaintance of Holmstead's. William Wehrum, the air office's general counsel, had represented timber interests as well. The forest association's lawyer, Claudia M. O'Brien, had been a law partner of Holmstead's and Wehrum's at Latham & Watkins.

Hunt and O'Brien were representing a politically well-connected industry. During the 2000 election cycle, timber company employees and their families donated $8.3 million to federal candidates and committees, 83% of it to Republicans, according to the Center for Responsive Politics, a nonpartisan research organization.

O'Brien presented proposals to spare low-risk plywood, particleboard and other plants from strict emission controls. She noted that such facilities were often situated in isolated areas, any harm from their emissions was debatable and, in some cases, the risk to the public appeared low. In addition, the expense of adding new controls to the plants, which the industry said could reach $1 billion, might make them vulnerable to foreign competition.

Reopening the Debate

To some EPA staffers, this seemed like reopening a debate Congress had tried to resolve in 1990. In the 20 years after the passage of the 1970 Clean Air Act, the EPA had been able to regulate only a handful of toxic substances because the agency became bogged down in disputes over how to measure health risks. As a result, Congress amended the act in 1990 to require that all large industrial plants reduce emissions of 189 substances using the best available technology as their standard.

But Holmstead was enthusiastic. Before reviewing the proposal with his own legal and technical staff, he declared, "We're going to do this," recalled one staffer who was there.

In a recent interview, Holmstead said he didn't remember the meeting, but added, "I'm sure I would have expressed interest in pursuing that."

He added: "Different people around town had been thinking for a while that it would be good if individual facilities could make a showing that they pose no risk to the community. In that case, why would you require them to spend a lot of money" to reduce emissions?

Throughout his career, Holmstead has sought to scale back environmental regulation of business and represented corporate clients seeking to minimize the effect of air pollution laws.

As an associate White House counsel during the George H.W. Bush administration, he worked with Vice President Dan Quayle's Competitiveness Council, which pushed to reduce environmental and other regulation.

After leaving government, he joined Latham & Watkins, where he represented chemical, semiconductor and other clients on environmental policy issues.

In 1996, he worked with colleagues representing Georgia Pacific in a $35-million settlement with the EPA and Justice Department over alleged Clean Air Act violations. The firm later was among those backing the proposal to exempt low-risk timber-product plants from formaldehyde controls.

Federal conflict-of-interest rules bar appointees from working on particular matters, such as contracts, grants or claims, that will have a financial effect on the appointee or his family. This also applies to matters involving a former employer for one year from the appointee's departure date. But rule-making, which has a broad effect, is exempted from this prohibition

"I meet with hundreds of outside groups representing a wide variety of interests, and it hardly seems right to penalize" past associates "by not allowing them to meet with me," Holmstead said. "It would be very hard to get people who are knowledgeable and qualified to do these jobs if they are unable to talk to people with whom they had affiliations in the private sector."

Graham, too, had past connections to the industries seeking to limit the regulation of formaldehyde. His office at OMB reviews and approves all new federal regulations.

He had testified on behalf of an association of paper companies, including Georgia Pacific, before the Maine Board of Environmental Protection in a 1992 hearing on setting a risk level for carcinogenic pollutants. In addition, the timber company donated to Graham's Harvard Center for Risk Analysis in 1991, 1992, 1995 and 1998. A spokesman said Georgia Pacific's donations were each for no more than $5,000.

The chemical industry's trade association contributed annually to Graham's risk center from 1994 to 1997, and in 1999 and 2001. The center relies on government and foundations as well as a wide range of industry for its funding.

Graham's prior financial ties were reviewed by OMB's ethics counsel when Graham took office and he was not "required to recuse himself from any issues," a spokesman said.

As the proposed rule worked its way through the EPA, career attorneys advised Holmstead that the exemption ran counter to the 1990 Clean Air Act amendments. A confidential March 2003 memo from a lawyer in the general counsel's office highlighted its legal vulnerability.

The proposal "results in a regulatory approach equivalent to the one Congress specifically rejected" in 1990, said the memo, obtained from sources outside the agency. "EPA would have a difficult time articulating any rational basis to defend such a … scheme."

Holmstead acknowledged the issue was debated by EPA lawyers.

"At the end of the day, the agency determined it was something we did have the authority to do," he said.

That's not the way architects of the 1990 legislation see it.

"I don't have any doubt but that is a way to get around the policy which we worked hard to achieve," said former Sen. David F. Durenberger (R-Minn.). Rep. Henry A. Waxman (D-Los Angeles) declared the timber products exemption "directly contrary to our intent."

The rule has also prompted objections from state regulators.

"It's a serious concern," said Bill Becker, executive director of two national organizations of state and local air pollution control officials. "We learned between 1970 and 1990 that a risk-based approach is totally ineffective in regulating toxics. The analytical tools are not sophisticated enough today to make that determination with confidence."

Meanwhile, as the EPA neared its deadline for approving the wood products regulation, the federal research institutes had updated two of the largest studies of formaldehyde toxicity ever conducted on human subjects. The National Cancer Institute study, published in November 2003, showed that 25,000 workers exposed to formaldehyde had an increased risk of leukemia.

A separate study of 10,000 workers by the National Institute of Occupational Safety and Health also found an elevated leukemia risk, but at different exposure levels. This assessment was posted on the institute's website in early 2004 and published in March.

Conversely, a third study of about 14,000 workers in England published in November 2003 found no such risk.

The authors of the U.S. studies said their work only suggested a link to leukemia, contained seemingly contradictory evidence and didn't explain how formaldehyde might trigger cancer in internal organs. But there was widespread agreement that the findings provided new reason for concern.

Studies Back Old Level

An internal EPA calculation showed that taking the new studies into consideration would keep the formaldehyde risk assessment close to the long-standing EPA level. Some staffers contended the agency should wait before finalizing a rule.

As a practical matter, if the EPA went plant-by-plant using its old risk level, about 90 facilities could be exempt from formaldehyde controls. But if the lower chemical institute assessment were employed, an additional 57 plants could qualify for the exemption.

The Chemical Industry Institute of Toxicology, a private, nonprofit research organization, changed its name in 2000 to the CIIT Centers for Health Research. Chemical companies provide most of the institute's funding, although it also receives federal grants and industry contracts.

In an e-mail to colleagues, Peter W. Preuss, who directs the EPA's National Center for Environmental Assessment, said he had "never been comfortable" with the chemical institute formaldehyde risk number or with calling it the "best available science." He is overseeing EPA's own assessment of formaldehyde risk.

And the World Health Organization's cancer research agency had called a meeting for early June to consider the new leukemia findings.

California's Scientific Review Panel on Toxic Air Contaminants cited the upcoming leukemia studies in mid-2003 when it postponed an industry request to adopt a more permissive formaldehyde standard. After further review, the panel, which advises the state's Air Resources Board, voted 6-0 Wednesday to recommend against reopening its risk assessment.

Panel chairman John Froines determined the case for reconsideration, including the chemical institute model, was "not ready for prime time," a spokesman said. And a leading state toxicologist told the panel any reassessment should include the new cancer institute study.

In contrast, EPA leaders decided to complete the federal rule based on the chemical institute science. They said they felt compelled by the court order to sign the new rule by the end of February. Extensions are frequently granted, but EPA did not seek one.

If the EPA's evaluation of formaldehyde risk finds merit in the leukemia studies, administration officials say, the risk assessment could be readily revised. But legal and regulatory experts say the rule has so many untested provisions that such a change would invite lawsuits that could take years to resolve.

"The question is: Are you going to effectively throw away all the work that's been done … and say we always have to err on the side of any possible uncertainty?" Holmstead said. "At the end of the day, we have to make decisions based on the best available science."

Many scientists, regulatory law experts and environmentalists insist the EPA should have taken the new human research studies into account when it did its risk assessment. The industry and others counter that unresolved questions about the studies made it premature to use them as the basis for regulation.

"The public should not assume a cause-and-effect relationship when only an association is suggested," said Betsy Natz, executive director of the Formaldehyde Council Inc., a trade group.

David Coggon, a British epidemiologist who did the 2003 study that found no increased level of leukemia, nonetheless said of the new American research: "The data are an extremely useful contribution to our knowledge about the potential human carcinogenicity…. Although I believe the risk of leukemia — if there is one — is low, I would expect regulators to take account of all the relevant scientific evidence."

At the Office of Management and Budget, Graham said he agreed with the EPA's decision to proceed after his scientists reviewed the new studies and "found that the results are conflicting and difficult to interpret."

In editing the new rule, Graham's office and senior EPA officials made only passing reference to the new scientific studies and rejected any specific discussion of them. The 503-page document contains no mention of a link to leukemia.

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